Exchangepedia Blog: iPhone OS 3.1 Security Changes and Exchange ActiveSync Policy
With the latest iPhone OS 3.1 update, iPhones start identifying themselves correctly, and if the ActiveSync policy configured by the administrator requires device encryption (see Figure 1 below), data on the device is encrypted. That's great news— unless you happen to have an older iPhone. If you're using the (Original/Classic/2G/1G?) iPhone , or the iPhone 3G, and device encryption is required, you will be unable to log on to your mailbox.
Important to remember these days, when execs start sporting iPhones.